On Thursday, November 9, 2017, the Senate Finance Committee released its version of tax reform legislation. The Senate bill, which comes one week after the House bill, departs from the House bill in several key areas, including:

• The bill would retain 7 individual income tax brackets, as opposed to 4 under the House bill, and the top individual rate is reduced from 39.6% to 38.5%.

• The state and local tax deduction would be eliminated for individuals. The deduction is limited to $10,000 of property taxes under the House bill.

• The tax rate on certain income from pass-through businesses is not capped at 25% as under the House bill, but instead, the Senate bill allows for a deduction of 17.4% of certain income from pass-through businesses.

• The 20% corporate tax rate would not take effect until 2019, as opposed to 2018 under the House bill.

• The estate tax is not repealed in 5 years, but like in the House bill, the exemption is doubled from approximately $5.5 million to $11 million and will continue to be adjusted annually for inflation. The gift and generation skipping tax exemptions are proposed to be adjusted similarly.

• The New Markets Tax Credit is not repealed after the 2017 allocation, unlike in the House bill, but the program sunsets under current law after the 2019 allocation.

• The Historic Tax Credit is not repealed, unlike in the House bill, but is reduced from 20% to 10% of qualified expenses (after an approximately 24-month transition period for property owned at all times after December 31, 2017). 

• The mortgage interest deduction would remain largely unchanged from current law, which sets a cap at mortgages of $1,000,000. The House bill lowered the cap for new mortgages to $500,000.

• Certain student loan deductions and medical expense deductions, which were all eliminated under the House bill, would be retained.

• The tax-exempt status of future issuances of private activity bonds, which was eliminated in the House bill, remains largely unchanged in the Senate bill.

• The nonqualified deferred compensation rules would be changed to significantly limit the ability to defer the taxation of compensation, a change which was included in the House bill as originally introduced but was subsequently eliminated from the House bill by amendment. 

There are still a number of policy and procedural issues that both the House and Senate must address, and it is expected that both bills will be subject to modifications in the coming weeks.